In relation to the merger of equals, FHN recorded a preliminary $533 million purchase accounting gain, representing the shortfall of the purchase price under the acquisition accounting value of net assets acquired, net of deferred taxes. The preliminary purchase accounting gain is not taxable. Due to the fact that back office functions (including loan and deposit processing) still have not been integrated, the evaluation of post-merger activity, and the extended

information gathering and management review processes required to properly record acquired assets and liabilities, FHN considers its valuations of IBKC's loans and leases, other assets, tax receivables and payables, other liabilities and acquired contingencies to be provisional as management continues to identify and assess information regarding the nature of these assets and liabilities and reviews the associated valuation

assumptions and methodologies. Accordingly, the amounts recorded for current and deferred tax assets and liabilities are also considered provisional as FHN continues to evaluate the nature and extent of permanent and temporary (timing) differences between the book and tax bases of the acquired assets and liabilities assumed. Additionally, the

accounting policies of both FHN and IBKC are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.

The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed presumed above.

Cash and due from banks and interest-bearing deposits with banks: The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Securities available for sale: Fair values for securities were based on quoted market prices where available. If quoted market prices are not available, fair value estimates are based on observable inputs obtained from market transactions in similar securities. Securities held to maturity were reclassified to securities available for sale based on FHN's intent at closing.

Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including loan type and related collateral, classification status, remaining term of the loan, fixed or variable interest rate, amortization status and current discount rates. Expected cash flows were derived using inputs consistent with management's assessment of credit risk for allowance measurement with adjustments for consistency with fair value measurement concepts. Large loans were specifically reviewed to evaluate credit risk. Loans were valued individually although multiple inputs were applied to loans with similar characteristics as appropriate. The discount rate did not include an explicit factor for credit losses, as that was included as a reduction to the estimated cash flows.

Leases: Sales-type and direct financing leases were valued at the net investment in the lease which consists of both the lease receivable (including both the remaining lease payments and the guaranteed residual asset value) and the unguaranteed residual asset, if any. Discounting of the lease receivable was performed using the rate implicit in the lease. The unguaranteed residual asset represents the difference in the fair value of the underlying asset and the lease receivable and therefore includes consideration of all terms and conditions in the lease.

Intangible assets: Core deposit intangible asset represents the value of the relationships with deposit clients. The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to

expected client attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the client deposits. The core deposit intangible asset is being amortized over its estimated useful life of approximately ten years utilizing an accelerated method. Client relationship intangibles are valued using a discounted cash flow methodology that reflects the estimated value of the future net earnings from the relationships which includes adjustments for estimated attrition.

Loans Held for Sale: The valuation of loans held for sale, primarily conforming mortgages, reflected quotes or bids on these loans directly from the purchasing financial institutions.

Allowance for Loan and Lease Losses: As discussed in Note 1, the adoption of ASU 2016-13 impacted the way in which the allowance for credit losses is determined for acquired loans. Prior to the IBKC merger, on January 1, 2020, IBKC also adopted ASU 2016-13 through the development of multiple current expected credit loss models (ECL Models) which segmented IBKC’s loan and lease portfolio by borrower and loan type to estimate lifetime expected credit losses for loans and leases. Within each ECL Model, loans and leases were further segregated based on additional risk characteristics specific to that loan or lease type and the ECL Models used both internal and external historical loss data, as appropriate.

While there were significant similarities in the manner of adoption of ASU 2016-13 by legacy FHN and legacy IBKC, numerous steps were taken to align the IBKC process to ensure that the ACL reported at the time of the IBKC merger in the table below and in all subsequent reporting periods is consistent with the ACL policies as outlined in Note 1 – Significant Accounting Policies and Note 5 – Allowance for Credit Losses. This included conforming certain IBKC assumptions (e.g., the reasonable and supportable forecast of future economic conditions and the reasonable and supportable forecast period, among others) to that of FHN. This was accomplished primarily through qualitative adjustments for alignment.

Derivatives: Derivative assets and liabilities are included in Other assets and Other liabilities. Forward sales contracts are valued using current transactions involving identical securities. Interest rate swaps, interest rate locks, interest rate collars, interest rate floors, and equity indexed derivatives are estimated using prices of financial instruments with similar characteristics and observable inputs. Risk participations also incorporate an estimate of credit risk.

Lease Assets and Lease Liabilities: Lease assets and lease liabilities were measured using a methodology that involved estimating the future rental payments over the remaining lease term with discounting using a fully-collateralized discount rate. The lease term was determined for individual leases based on management's assessment of the probability of exercising existing renewal options. The net effect of any off-market terms in a lease were also discounted and applied to the balance of the lease asset.

Premises and Equipment: Land and buildings held for use are valued at appraised values, which reflect considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Locations held for sale are valued at appraised values which also reference recent disposition values for similar property types but also considers marketability discounts for vacant properties. The valuations of locations held for sale are reduced by estimated costs to sell. Other fixed assets are valued using a discounted cash flow methodology which reflects estimates of future value of assets to a hypothetical buyer.

OREO: OREO properties are valued at estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values which includes consideration of recent disposition values for similar property types with adjustments for characteristics of individual properties.

Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis applying interest rates currently offered to the contractual interest rates on such time deposits.

Short-term borrowings: The carrying amount of these liabilities is a reasonable estimate of fair value based on the short-term nature of these liabilities.

Term Borrowings: The fair values of long-term debt instruments are estimated based on quoted market prices for instrument if available, or for similar instruments if not available. For redeemable debt instruments, an evaluation of the debt terms in comparison to current financing alternatives was performed to evaluate if the redemption value represented the fair value relevant to a market participant. If pricing for similar instruments is not available, a discounted cash flow analysis is utilized based on estimated current borrowing rates for similar types of instruments and considers whether the debt is currently callable. Estimated discount rates are determined from the perspective of the post-merger combined entity rather than the acquiree and/or original issuers.

FHN's operating results for the year ended December 31, 2020 include the operating results of the acquired assets and assumed liabilities of IBKC subsequent to the merger of equals transaction on July 1, 2020. Due to various system conversions of IBKC during the second half of 2020, as well as other streamlining and integration of the operating activities into those of the Company, historical reporting for the former IBKC operations is impracticable and thus disclosures of the revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to acquisition.

The following table presents pro forma information as if the IBKC transaction occurred on January 1, 2019. The pro forma information does not necessarily reflect the results of operations that would have occurred had the two companies combined on January 1, 2019. Furthermore, cost savings and other business synergies related to the transaction are not reflected in the pro forma amounts.


	Pro Forma Information for the Years Ended
(Dollars in millions)	December 31, 2020		December 31, 2019 (a)
Net interest income	$	2,247	$	2,256
Noninterest income	1,071		888
Net income (loss)	677		881

(a) Does not include the impact of CECL which was adopted January 1, 2020.

Total merger and integration expenses for the IBKC merger recognized for the years ended December 31, 2020 and 2019 are presented in the table below:


(Dollars in millions)	2020		2019
Legal and professional fees (a)	$	41	$	8
Personnel expense (b)	61		3
Contribution expense (c)	20		—
Miscellaneous expense (d)	18		—
Total IBKC merger expense	$	140	$	11

(a) Primarily comprised of fees for legal, accounting, and merger consultants.

(b) Primarily comprised of fees for severance and retention.

(d) Primarily comprised of fees for travel and entertainment, contract employment and other miscellaneous expenses.

On July 17, 2020, First Horizon Bank completed its purchase of 30 branches from Truist Bank. As part of the transaction, FHN assumed approximately $2.2 billion of branch deposits for a 3.40% deposit premium and purchased approximately $423 million of branch loans. The branches are in communities in North Carolina (20 branches), Virginia (8 branches), and Georgia (2 branches). This transaction qualifies as a business combination.

As of December 31, 2020, the valuation of the acquired assets and liabilities from the Truist branches acquisition was final.

The following schedule details the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed from Truist Bank as of July 17, 2020.


(Dollars in millions)	Truist Bank
Assets:
Cash and due from banks	$	2,202
Loans and leases	423
Allowance for loan and lease losses	(2)
Other intangible assets	7
Premises and equipment	11

Other assets	27
Total assets acquired	$	2,668
Liabilities:
Deposits	$	2,195
Other liabilities	30
Total liabilities assumed	$	2,225
Net assets acquired	$	443
Consideration paid:
Cash	$	521
Total consideration paid	$	521
Goodwill	$	78

In relation to the acquisition, FHN recorded $78 million in goodwill, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN's Regional Banking segment (refer to Note 7 - Intangible Assets for additional information). This goodwill is the result of expected synergies, operational efficiencies and other factors.

FHN's operating results for the year ended December 31, 2020 include the operating results of the acquired assets and assumed liabilities of Truist Bank subsequent to the acquisition on July 17, 2020. Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.

Total other merger and integration expense recognized for the years ended December 31, 2020 and 2019 are presented in the table below:


	Years ended December 31,
(Dollars in millions)	2020		2019
Legal and professional fees (a)	$	2	$	11
Personnel expense (b)	6		1
Contract employment and outsourcing (c)	1		—
Net occupancy expense (d)	1		1
Miscellaneous expense (e)	4		2
All other expense (f)	6		7
Total	$	20	$	22

Certain previously reported amounts have been reclassified to agree with current presentation.

(a) Primarily comprised of fees for legal, accounting, and merger consultants.

(b) Primarily comprised of fees for severance and retention.

(d) Primarily relates to expenses associated with lease exits.

(e) Consists of fees for operations services, communications and courier, equipment rentals, depreciation and maintenance, supplies, travel and entertainment, computer software, and advertising and public relations.

(f) Primarily relates to contract termination charges, internal technology development costs, costs of shareholder matters and asset impairments, as well as other miscellaneous expenses.

In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate. In April 2019, FHN sold a subsidiary acquired as part of the CBF merger in 2017 that did not fit within FHN's risk profile. The sale resulted in the removal of approximately $25 million UPB of subprime consumer loans from Loans held for sale on FHN's Consolidated Balance Sheets.